Forward the Original Title ‘MIIX Capital：韩国市场研究报告’

Introduction

South Korea’s cryptocurrency market is arguably one of the most active and mature. Almost everyone in South Korea is familiar with BTC, and the populace is more receptive to emerging projects. Particularly, young people show a much higher enthusiasm for cryptocurrencies compared to older generations. Additionally, due to the market economic environment in South Korea, younger individuals experience a stronger FOMO (Fear of Missing Out) sentiment.

1. Macroeconomic Indicators and Current Status

South Korea is a high-income developed country and one of the most industrialized member states of the OECD. Renowned Korean brands such as LG Electronics and Samsung are internationally recognized for their high-quality electronic products and other manufactured goods. South Korea became a member of the OECD in 1996.

Geography and Population

South Korea, officially the Republic of Korea (ROK), is located on the southern part of the Korean Peninsula, extending about 1,100 kilometers from the Asian mainland. It shares a border with North Korea along the Korean Demilitarized Zone, with the Yellow Sea to its west and the Sea of Japan to its east. The country (including all its islands) spans from 33° to 39° North latitude and 124° to 130° East longitude, with a total area of 100,410 square kilometers (38,768.52 square miles).

As of 2022, South Korea’s population was estimated at approximately 51.7 million. However, the country’s birth rate became the lowest in the world in 2009, with the working-age population declining at the fastest rate among OECD countries. It is projected that by 2025, the proportion of the population aged 65 and above will exceed 20%, and by 2050, it will approach 45%.

South Korea is known for its high population density, estimated at 514.6 people per square kilometer in 2022, more than ten times the global average. Excluding microstates and city-states, it is the third most densely populated country in the world. South Korea is also one of the most ethnically homogeneous societies, with Koreans making up about 96% of the total population. Since many immigrants are ethnic Koreans themselves, statistics do not record ethnicity, making it difficult to estimate accurate numbers.

Economic Structure and Characteristics

South Korea has a mixed economy with key industries including textiles, steel, automobile manufacturing, shipbuilding, and electronics. Rapid growth over the past few decades has been largely driven by exports of electronics and telecommunications equipment, earning the country a reputation as a top global producer and innovation hub.

The country holds a significant or dominant position in many major global industries, such as nuclear power, consumer electronics, and biotechnology. It is also striving to become a major player in smart grid technology, the Internet of Things (IoT), and robotics.

South Korea’s economy is heavily reliant on international trade. In 2014, it was the world’s fifth-largest exporter and seventh-largest importer. However, in light of tightening interest rate environments and weakened external demand affecting exports, economic growth is expected to be moderate but slow in the near term. Notably, South Korea’s major export product, semiconductors, saw a 41% decline in April 2023. The International Monetary Fund (IMF) forecasts a real GDP growth rate of 1.5% for 2023.

As of 2023, South Korea has 82 chaebols (single-family-owned conglomerates and have total assets of 5 trillion won ($3.690 billion) or more), with Samsung being one of the most valuable, having a market value exceeding $375 billion, larger than the economy of Qatar. According to Statista.com, the top five conglomerates (Samsung, SK Group, Hyundai Motor Company, LG, and POSCO) accounted for nearly 53% of the total revenue of South Korea’s 82 major business groups as of May 2023.

South Korea GDP Ranking

South Korea’s economy is one of the largest and most advanced globally, ranking 13th by nominal GDP and 14th by purchasing power parity (PPP) GDP. According to the World Bank, South Korea’s GDP in 2022 was $1.67392 trillion, accounting for 0.72% of the world economy.

Inflation Rate Data

In April 2024, South Korea’s annual inflation rate slowed to 2.9%, down from 3.1% the previous month and slightly below market forecasts of 3%. This was the lowest reading since January, as the costs of food and non-alcoholic beverages (5.9% vs. 6.7% in March) and restaurants and hotels (3% vs. 3.4%) rose at a slower pace.

Meanwhile, housing, electricity, gas, and water costs rose at the same pace (1.8%), while prices for clothing increased more quickly (2.9% vs. 2.8%). On a monthly basis, inflation was flat after a 0.1% rise the previous month, below market expectations of a 0.2% increase.

South Korea’s legal tender

The South Korean Won (KRW) is the official currency of South Korea. The currency code is KRW, and the symbol is ₩. The conversion factor for the Won is 6 significant digits. It is a fiat currency. According to data from research firm Kaiko, in the first quarter of 2024, the Won became a major currency in global cryptocurrency trading, with a cumulative trading volume of $456 billion, reflecting South Korea’s growing speculative interest in high-risk crypto assets.

2. Current Status and Characteristics of the Crypto Market

High User Proportion

According to the semi-annual report on crypto asset businesses by the Korea Financial Intelligence Unit (KOFIU), the number of active users registered on crypto asset exchanges in South Korea increased by 390,000 by the second half of 2023, with over 6.4 million (11% of the population) actively engaging in cryptocurrency trading.

High Adoption Rate

Driven by a tech-savvy population and a keen interest in financial innovation, cryptocurrency ownership and adoption in South Korea have significantly increased. Most investors engage primarily in centralized exchange-focused activities, making centralized exchanges highly influential in the South Korean crypto market. There has been a notable rise in cryptocurrency holdings, especially among individuals in their 40s and 50s, as well as young investors in their 20s and 30s.

Large Trading Volumes

Additionally, with the arrival of a new market cycle and the rise in BTC prices, a renewed frenzy in cryptocurrency trading has emerged in South Korea. In March 2024, the trading volume on domestic crypto exchanges reached a record 11.8 trillion KRW (approximately $9 billion), surpassing the trading volume on the South Korean stock market at 11.47 trillion KRW (approximately $8.7 billion).

3. Characteristics of Crypto Users

Recent data shows a significant increase in cryptocurrency ownership in South Korea, with a diverse demographic range, notably among individuals in their 40s and 50s, as well as young investors in their 20s and 30s. According to a report by Forkast, 31% of South Korean investors are in their 30s, 27% in their 40s, and a quarter in their 20s.

Higher Female User Proportion Compared to Other Regional Markets

According to a 2023 survey by Kucoin:

26% of adult internet users in South Korea aged 18 to 60 had invested in cryptocurrency in the past six months;

Among all crypto investors, males (56%) participated more than females (44%);

The investment rate among young women (Generation Z) aged 18–30 has significantly increased, accounting for 67% of female crypto investors;

This trend indicates that women, particularly those in Generation Z, may play a more significant role in future cryptocurrency investments.

Generation Z Prefers Quick Wealth Accumulation

The survey also analyzed different motivations for investing in cryptocurrencies:

Older age groups are motivated by long-term wealth accumulation (47%);

Generation X tends to prefer long-term investments (55%) and portfolio diversification (38%);

Generation Z is inclined towards quick returns, with 38% aiming for “getting rich quickly,” compared to the overall average of 30%;

Young investors are primarily driven by FOMO, reflected in their higher trading frequency, with 64% of Generation Z investors trading more than once a week, compared to 48% of Generation Y and 42% of Generation X.

Additionally, Generation Z shows a higher interest in the entertainment value of crypto investments (27%), viewing it as an enjoyable activity beyond just financial returns.

4. Status of CEX in South Korea

South Korea is one of the largest and most active cryptocurrency markets globally. According to CoinGecko, as of May 14, 2024, its five licensed exchanges — Upbit, Bithumb, Coinone, Korbit, and Gopax — handled over $2 billion in crypto transactions.

Upbit

Upbit is the largest exchange in South Korea, dominating the market with over 80% of the trading volume ($1.5 billion as of May 17, 2024), making it one of the top five cryptocurrency exchanges globally. It also operates in Singapore, Thailand, and Indonesia, focusing on major crypto markets in Southeast Asia.

Bithumb

Founded in 2014, Bithumb has grown to become one of the largest and most influential crypto exchanges headquartered in Seoul, South Korea. As of May 14, 2024, it ranked second with a daily trading volume of $411 million, according to CoinGecko.

Other CEX

According to CoinGecko, as of May 17, 2024, other CEXs had smaller market shares compared to Upbit and Bithumb, with daily trading volumes of $5 million (Korbit), $2 million (Gopax), and $29 million (Coinone).

5. South Korea’s Web3 Projects

ZEAT

ZEAT is a game social platform designed to connect players, foster the search for gaming partners, chat with friends, and share content. It supports clans with features like casual matches, tournaments, and missions. ZEAT aims to integrate Web3 elements such as NFTs, SocialFi, and tokens to enhance the gaming experience. The platform’s AI recommendation system helps players discover like-minded individuals and build communities.

CXT.Tax

CXT.Tax, also known as CryptoTax, is a platform designed for efficient management of cryptocurrency assets and taxes. It offers features such as transaction data aggregation across various trading platforms, real-time asset monitoring, and the latest news and disclosures. Users can preview and report taxes, estimate future tax liabilities, and receive important updates about their assets. CryptoTax aims to simplify digital asset management and tax compliance for investors.

DSRV

DSRV is a blockchain infrastructure company based in Seoul, South Korea. It provides a range of services, including node operation, staking, and blockchain development tools. DSRV supports over 40 major blockchain networks and operates more than 4,000 nodes. The company also offers products like Welldone Studio, an integrated development tool for multi-chain environments, and All That Node, a comprehensive multi-chain development suite. DSRV aims to simplify blockchain integration and promote sustainable growth within the industry.

Hyperithm

Hyperithm is a digital asset management company headquartered in Tokyo and Seoul, specializing in quantitative trading and venture capital. They use advanced trading strategies and investment expertise to provide institutional-grade services in the digital asset space.

KODA

Korea Digital Asset (KODA) is South Korea’s largest institutional crypto custody service company, announced on February 22, 2023, funded by KB Kookmin Bank (the largest retail bank in South Korea), Haechi Labs, and the 2020 South Korean VC fund Hashed. KODA saw the value of its custodied crypto assets expand by nearly 248% in the second half of 2023.

6、South Korean Crypto Venture Capital

Lecca Ventures

Lecca Ventures is a South Korean venture capital firm focused on the Web3 and cryptocurrency sectors. They specialize in investing in community-driven startups, particularly those led by visionary founders. Lecca Ventures takes a hands-on approach, providing not only capital but also actively participating in the development and expansion of their portfolio companies.

Their investment strategy emphasizes quality over quantity, aiming to support startups that offer unique and innovative solutions in the Web3 space. Their portfolio includes companies like Airstack, Alloyx, Nibiru, Shield, Anima, and Mission ate Cash, known for their contributions to the crypto industry.

Hashed

Hashed is a renowned blockchain investment firm and incubator based in Seoul, with offices in Silicon Valley. The company focuses on supporting and investing in innovative blockchain projects and Web3 startups. Founded by Simon Kim, Hashed is dedicated to building a decentralized future by supporting visionary entrepreneurs and providing comprehensive support to its portfolio companies. Hashed plays a significant role in the global blockchain ecosystem, hosting events like Korea Blockchain Week to promote community and collaboration within the industry.

7. South Korean Crypto Market Regulation

South Korea has established a comprehensive regulatory framework for cryptocurrencies, aiming to ensure investor protection and market integrity. Key components of this framework include:

Digital Asset Basic Act

This upcoming legislation aims to provide a structured approach to regulating virtual assets. It includes regulatory requirements for virtual asset service providers (VASPs), standards for issuing and listing cryptocurrencies, and information disclosure requirements to prevent unfair trading practices.

Anti-Money Laundering (AML) and Compliance

The Financial Intelligence Unit (FIU) is enhancing its scrutiny of cryptocurrency exchanges. The FIU’s strategy includes rigorous inspections and enforcement of strict regulatory standards to curb illegal activities such as money laundering and embezzlement. Exchanges must obtain real-name verification services and segregate user funds from company funds.

Investor Protection Measures

Following high-profile incidents like the Terra-LUNA collapse, regulatory focus has shifted towards strengthening investor protection. This includes stricter controls on token issuance and listing, as well as mandatory disclosure of holdings by senior officials to prevent conflicts of interest.

Global Compliance Standards

South Korea’s regulatory efforts align with global standards, such as those set by the Financial Action Task Force (FATF). This ensures that the country’s regulations are consistent with international best practices, enhancing the reliability and security of its digital asset market. These measures aim to create a safer, more transparent environment for cryptocurrency trading in South Korea, balancing the need for innovation with the necessity of protecting investors and maintaining market stability.

8. South Korean Tax Policies

South Korea’s tax policies on cryptocurrencies are evolving, reflecting the government’s efforts to balance regulation and market growth. Initially, South Korea planned to impose a 20% tax on cryptocurrency gains exceeding 2.5 million KRW (approximately USD 2,300) starting in 2022. However, this faced several delays due to industry opposition and legislative changes. As of now, the tax implementation has been postponed to January 2025, applicable to cryptocurrency trading income, requiring investors to report their gains for taxation. Additionally, the ruling People Power Party has proposed another delay, prioritizing the establishment of a comprehensive regulatory framework, possibly pushing the effective date to 2027.

Tax regulations classify cryptocurrency gains as “miscellaneous income,” and any non-sale transfer of crypto assets, such as gifts or inheritances, is subject to statutory gift and inheritance tax rates, which can be as high as 50%. The South Korean government also focuses on increasing transparency and combating illegal activities in the crypto market, requiring exchanges to share transaction records and senior officials to disclose their cryptocurrency holdings starting in 2024.

In South Korea, capital gains tax varies based on the asset type and whether the seller is a resident or non-resident.

Non-residents must pay capital gains tax on income from Korean sources, with rates and rules typically similar to those for residents.

9. Conclusion

As a G20 member with a strong economy backed by companies like Samsung and Hyundai, South Korea plays a significant role in the global economic landscape. It is also a culturally homogeneous market, making it challenging for teams without a local presence to enter the market.

On the other hand, South Korea’s financial system enjoys high trust, which leads to lower enthusiasm for decentralized self-custody and DeFi among users. However, driven by FOMO (Fear of Missing Out) for investment, value preservation, and wealth creation, the South Korean crypto market remains robust and stands out in the global crypto landscape, especially with the extensive adoption of licensed cryptocurrency exchanges and users.

As of 2024, South Korea’s cryptocurrency market is characterized by a rapidly evolving regulatory environment, increased government oversight, and significant market activity. With high levels of market participation and stringent enforcement measures, South Korea has become a key player in the global cryptocurrency field. As the industry continues to develop, South Korea is poised to play an increasingly important role in the global crypto market.

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